U.S. Regional Banks Face Office Loan Woes Amid Remote Work Shift

U.S. regional banks are contending with increased pressures in their office loan portfolios due to the ongoing prevalence of remote work. With nearly $950 billion in commercial real estate mortgages maturing in 2024, these challenges may persist. Rate cuts might offer some relief, though office loans remain problematic.

U.S. regional banks are struggling with heightened pressures in their office loan portfolios, as remote and hybrid work patterns continue to shape market dynamics. Although interest rate cuts might ease conditions in other segments, office loans face distinct hurdles, analysts indicate.

A Reuters analysis revealed that almost twelve mid-sized and regional banks, including KeyCorp and Fifth Third Bancorp, reported increased non-performing loans in their commercial real estate (CRE) holdings in the latest quarter compared to the previous year. An expected maturation of about $950 billion in CRE loans in 2024 could exacerbate these issues, analysts warn.

The market shifts driven by remote work and technological advancements like AI are underpinning demand challenges for office spaces, says Michael Ashley Schulman of Running Point Capital. While some banks may choose to extend loan terms as a strategic relief measure, there are concerns about long-term systemic risks. Experts at Running Point and Segall Bryant & Hamill underscore the need for lenders to maintain sufficient capital beyond 2025 to navigate these evolving challenges.

(With inputs from agencies.)